Date: 2017-10-19
Use of trade data for absolute return-focused funds
I like democracy in that it aspires to elect someone who represents the group. When a group is divided into only two, the question of who correctly represents the group becomes more difficult to answer to, however most of the time most people lie somewhere in between black and white in not one but many agenda, so I am of the view that democratically elected leader does represent the group quite well.
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A similar concept is applicable for the definition of languages. One way a definition of language forms and changes is via how people end up using them, and I find it silly when linguists criticize people’s incorrect use of certain language.
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One way to group funds is: absolute versus relative return-focused: Mutual funds tend to be relative return-focused; Hedge funds tend to be absolute return-focused; ETFs would fall under relative return focused category; Pension funds, family offices, private banks, and individuals fall under absolute return focused category. However, in any case, it is quite misleading to think as if the term ‘absolute’ is literally applicable for the absolute return-focused ones. The underlying premise behind the idea of absolute return-focused funds is purchasing power protection, hence the inflation becomes a key consideration.
This is an important concept to understand for the managers who focus on the absolute returns, because investment ultimately is a hedge against population’s consumption, and as long as the hedge is properly done, the investment can outperform the inflation and absolute return-focused funds’ mission is accomplished. For this reason, it is important to identify how much inflation is induced at which levels and regions of economy.
One way to measure this is via observation of the gap between the volume based and nominal value based trade data.